The Government May Still Have Nothing on SAC Capital

*Update: The FBI raided two hedge funds run by former SAC Capital employees, according to a report. A third hedge fund has also been raided, although it is unclear right now if there is any connection to SAC Capital.*

It’s been clear for nearly a year that the government has been targeting Steve Cohen’s SAC Capital in its insider trading dragnet. But it seems like the government keeps coming up empty.

The Federal Bureau of Investigation’s Special Agent B.J. Kang—the guy who arrested Bernie Maddoff and Galleon founder Raj Rajaratnam—first investigated allegations of trading irregularities at SAC three years ago, although the inquiry concluded with no charges being filed against the firm. Reuters investigative reporter Mattew Goldstein first reported the investigation in 2009.

Kang’s 2007 investigation sprang from a lawsuit filed a year earlier by Fairfax Financial Holdings, a Canadian insurance company, against 20 or so hedge funds—including SAC Capital—and stock analysts alleging the defendants were part of a scheme to sell the company’s stock short, have negative analyst reports published, then profit when the stock dropped. Critics of the lawsuit described it as a way of attempting to chill criticism of the company.

During the course of that investigation, Kang interviewed former SAC analyst Andrew Tong. You may have heard of Tong. He had come to Kang’s attention because he had filed a lawsuit earlier that year alleging that a man named Ping Jiang, then a top trader at SAC, had forced him to perform oral sex and ordered him to take female hormones so that his trading would be balanced between male and female instincts.

Tong also alleged that traders at SAC had engaged in manipulative trading.

"Steven Cohen only wants us to make money, he doesn't care or want to know our secrets to make money—SAC doesn't need to know and doesn't want to know," Tong said in his lawsuit filing, allegedly quoting Jiang's instructions to him.

Although that case went nowhere, the possibility of going after SAC Capital arose once again when Richard Choo-Beng Lee, a former SAC trader, agreed to provide prosecutors in with evidence of insider trading allegedly committed between 1999 and 2009. Choo-Beng was employed by SAC for five of those years.

In addition to Choo-Beng, federal authorities seem to have been trying to gain the cooperation of Jonathan Hollander, a former SAC analysts who worked for Cohen up until November 2008.

Once again, it is Reuter’s Goldstein who has the scoop:

Federal authorities have linked Hollander to several allegations of insider trading in both court filings and testimony at a recent criminal trial, but he has not been charged with any wrongdoing.

Reuters has learned that prosecutors disclosed for the first time in August that they had taken at least two confidential statements from Hollander at some point over the previous 18 months.

The most likely reason Hollander hasn’t been charged yet is that prosecutors are trying to see if they can build a case against someone higher up at SAC with Hollander’s cooperation.

So that’s two potential cooperating witnesses—three if you count Tong, whose credibility might be damaged by the wild nature of the charges against Ping Jiang—but yet federal authorities are still seeking more. As the Wall Street Journal reported over the weekend, the federales attempted to convinced independent analyst John Kinnucan to tape his phone calls with SAC Capital, one of his clients. Kinnucan says he declined.

Could it be that the government is engaged in an open-ended fishing expedition against SAC Capital but has come up without charges?